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Item 7. Management’s Discussion and Analysis

2024-02-01 compared with 2023-02-09 · 217 added, 384 removed, 436 unchanged (58% of the section changed)

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Business Environment

We continue to see uncertainty in the economy, our industry, and our company, with challenges for customers and suppliers, labor shortages, supply chain challenges, and inflation, among other impacts.

Government Contracts - Long-term uncertainty exists with respect to overall levels of defense spending across the future years' defense plan, and it is likely that U.S.

Government discretionary spending levels will continue to be subject to significant pressure.

The fiscal year 2023 budget cycle concluded with the enactment of the National Defense Authorization Act ("NDAA") for fiscal year 2023 on December 23, 2022 and the Consolidated Appropriations Act, 2023 on December 29, 2022.

The NDAA broadly supported our shipbuilding programs, including multiyear procurement authority for up to 15 DDG Flight III destroyers, a fleet requirement of no less than 31 operational amphibious warships (LPD/LHD/LHA), including a minimum of 10 amphibious assault ships (LHD/LHA), and bundle acquisition authority for LPD/LHA amphibious warship procurement.

Final defense appropriations were included in the Consolidated Appropriations Act and provided funding for three Arleigh Burke class (DDG 51) destroyers, two Virginia class (SSN 774) attack submarines and continued funding for LPD 32 (unnamed) and Fallujah (LHA 9).

Additionally, the appropriations measure provided advance procurement funding for LPD 33, LHA 10, and a third Arleigh Burke class (DDG 51) destroyer in fiscal year 2024.

The bill also provided funding for the Columbia class (SSBN 826) ballistic-missile submarine program, Gerald R.

Ford class (CVN 78) nuclear aircraft carrier programs, and the refueling and complex overhaul ("RCOH") of USS John C.

Stennis (CVN 74), as well as funding to support large surface combatant shipyard infrastructure and the submarine industrial base.

The federal budget environment remains a significant long-term risk.

Considerable uncertainty exists regarding how future budget and program decisions will develop and what challenges budget changes will present for the defense

We believe continued budget pressures could have serious implications for defense discretionary spending, the defense industrial base, including HII, and the customers, employees, suppliers, subcontractors, investors, and communities that rely on companies in the defense industrial base.

Although it is difficult to determine specific impacts, we expect that over the longer term, the budget environment may result in fewer contract awards and lower revenues, profits, and cash flows from our U.S.

Government contracts.

It is likely budget and program decisions made in this environment will have long-term impacts on HII and the entire defense industry.

Political and Economic Environment – The global geopolitical and economic environment continues to be impacted by uncertainty, heightened tensions, and instability.

Geopolitical relationships have changed, and are continuing to change, and the U.S.

We continue to see uncertainty, both domestically and globally, with challenges for customers and suppliers, labor shortages, supply chain challenges, and inflation, among other impacts.

Defense Spending Environment – Congressional consideration of the $886 billion fiscal year 2024 President’s Budget Request for defense spending began following its submission to Congress on March 9, 2023.

Additionally, after the statutory debt limit of $31.4 trillion was reached in January, the President signed into law the Fiscal Responsibility Act of 2023 (the “FRA”) on June 3, 2023, which suspended the federal debt limit through January 1, 2025 and established new discretionary funding limits for defense and non-defense accounts.

The FRA capped national defense spending at $886 billion for fiscal year 2024 (consistent with the President’s budget request level) and $895 billion for fiscal year 2025.

In accordance with the FRA, since Congress did not pass full-year appropriations for all discretionary spending by the end of calendar year 2023, fiscal year 2024 discretionary spending is subject to sequestration after April 30, 2024.

Any additional emergency supplemental funding legislation during fiscal years 2024 and 2025 is not subject to the budget caps.

The House and Senate reached a compromise agreement on the National Defense Authorization Act ("NDAA") for fiscal year 2024 in December 2023.

Overall, the fiscal year 2024 NDAA authorizes $886 billion for national defense programs, consistent with the spending caps directed in the FRA.

The compromise legislation supports our shipbuilding priorities with a total authorization of $32.9 billion for shipbuilding programs, including the authorization of an LPD 33 Flight II amphibious ship along with incremental funding authority, two Virginia class (SSN 774) submarines, one Columbia class (SSBN 826) ballistic missile submarine, and two Arleigh Burke class (DDG 51)

Additionally, the fiscal year 2024 NDAA authorizes multiyear procurement authority for the Block VI Virginia class (SSN 774) submarine contract and includes authorities to help implement the Australia-United Kingdom-United States security partnership, including the authority to transfer Virginia class submarines to Australia effective in fiscal year 2025.

Both House and Senate appropriations bills have been passed out of committee, and the House defense appropriations bill has been approved by the full House.

The House defense appropriations measure broadly supports the President’s budget request for shipbuilding, including funding for two Virginia class (SSN 774) submarines, one Columbia class (SSBN 826) ballistic missile submarine and two Arleigh Burke class (DDG 51) destroyers.

The Senate Appropriations Committee included $500 million in advance procurement for LPD 33 (unnamed) and advance procurement for a third Arleigh Burke class (DDG 51) destroyer in fiscal year 2025, as well as full funding for two Arleigh Burke class (DDG 51) destroyers, two Virginia class (SSN 774) submarines, and one Columbia class (SSBN 826) submarine in fiscal year 2024.

Although a new fiscal year began on October 1, 2023, annual appropriations to fund the federal government for fiscal year 2024 have not been enacted.

To provide Congress additional time to reach agreements on funding levels for federal agencies, a Continuing Resolution ("CR") extending funding through November 17, 2023, at fiscal year 2023 levels was enacted on September 30, 2023.

Congress passed a second CR in November 2023 that extended agencies covered by four of the appropriations bills until January 19, 2024, and the balance of agencies, including the DoD, until February 2, 2024.

An additional CR passed by Congress in January 2024 further extended government funding deadlines under the previous CR’s division of appropriations bills until March 1, 2024, and March 8, 2024.

While the DoD is normally prohibited from starting new programs or increasing funding on existing programs under a CR, the current CR includes an exception that will allow the DoD to deviate from typical restrictions and obligate funding to begin construction of the second Columbia class nuclear submarine (SSBN 827).

We cannot predict the outcome of the fiscal year 2024 budget process or whether additional short-term funding will be required in the event annual appropriations measures are not finalized by the expiration date of the current CR.

Global Geopolitical Environment – Our current operating environment exists in the broader context of political and socioeconomic priorities and continues to be impacted by uncertainty, heightened geopolitical tensions, and instability.

Geopolitical relationships continue to change, and the U.S.

and its allies face a global security environment that includes threats from state and non-state actors, including major global powers, as well as terrorist organizations, emerging nuclear tensions, diverse regional security concerns, and political instability.

These global threats persist across all domains, from undersea to space to cyber, and the global market for defense products, services, and solutions is driven by these complex and evolving security challenges.

Our current operating environment exists in the broader context of political and socioeconomic priorities and reflects, among other things, the continued impact of and uncertainty surrounding geopolitical tensions, financial market volatility, inflation, a challenging labor market, and the continued threat posed by COVID-19.

In February 2022, Russian forces invaded Ukraine, and the conflict is continuing.

In response, the United States and other countries imposed economic and trade sanctions, export controls, and other restrictions.

This conflict and the associated sanctions have disrupted the global economy, causing heightened cybersecurity risks, supply chain challenges, higher energy costs, and an exacerbation of existing inflationary pressures.

In response, the U.S.

and other countries imposed economic and trade sanctions, export controls, and other restrictions on Russia.

This conflict and the associated sanctions have impacted the global economy, causing heightened cybersecurity risks and an exacerbation of supply chain challenges, higher energy costs, and inflationary pressures.

Additionally, and more broadly, tensions with China and changes in international trade policies, including higher tariffs on imported goods and materials, could impact the global market for defense products, services, and solutions.

In addition to price surges in energy, food, and aluminum, an increase in inflation has led to higher costs of various commodities and supplier products.

In an era of unanticipated cost increases, the inclusion of mitigation mechanisms, such as economic price adjustment clauses, in our contracts help mitigate certain risks attributable to price inflation.

Our bids for longer-term firm fixed-price contracts typically include assumptions for labor and other contract costs that historically have been sufficient to cover cost increases over the period of performance.

If, however, recent inflationary conditions continue over the long-term, our cost assumptions may not be sufficient to cover potential contract cost growth or may impact the availability of resources to execute the respective contracts.

Management is closely monitoring possible cost impacts with our customers .

The macro labor market continues to present significant challenges, and those challenges continue to impact our operations and our financial performance.

We are aggressively responding to the labor market challenges, including utilizing outside leased labor and overtime to mitigate the short-term deficit of employees and implementing aggressive hiring and retention programs.

Labor shortages are also impacting our supply chain, resulting in longer lead times for materials, parts, and other supplies, as well as inflationary pressure.

Our longer term ability to meet contract requirements, as well as our financial performance, are dependent on our ability to attract and retain a stable skilled workforce.

The Inflation Reduction Act of 2022 ("IRA") was signed into law during the third quarter of 2022 and included provisions for an alternative minimum tax and a one percent excise tax on share repurchases.

We anticipate being subject to the excise tax beginning in 2023 and continue to evaluate other provisions of the IRA for their impact on our business.

COVID-19 Pandemic - The COVID-19 pandemic has dramatically impacted the global economic environment, including labor shortages and supply chain challenges.

The COVID-19 crisis initially had a significant impact on the U.S.

labor market, and the resulting challenges and uncertainty have exacerbated already existing workforce trends.

Meanwhile, the duration and impact of the evolving conflict surrounding Israel and Gaza is unknown but is likely to have global economic and political ramifications.

The escalating strategic competition with China and the implications of Russia’s invasion of Ukraine and the Israeli-Gaza conflict have led Asian, Oceania, and European countries, in particular, to pay renewed attention to their military budget.

Global military expenditures surpassed $2 trillion for the first time in 2021, and the recent conflicts in both Ukraine and Israel could lead to more demand.

Economic Environment – Conflict or the threat thereof has led to an increase in economic and trade sanctions and export controls.

Economic tensions with other nations and changes in international trade policies, including higher tariffs on imported goods and materials and renegotiation of free trade agreements, have impacted the global market for defense products, services, and solutions.

Global supply chain and labor markets continue to experience high levels of disruption, causing significant materials and parts shortages, including raw material, microelectronics and commodity shortages, as well as delivery delays, labor shortages, and price increases.

Domestically, the political ramifications of national debt levels coupled with the uncertainty of economic indices including inflation, gross domestic product growth, and the pace of recovery from the coronavirus pandemic could increase pressure on discretionary spending.

While monthly inflation rates have steadily declined since peaking at

9.1% in June of 2022, rising military personnel and operations and maintenance costs continue to pressure the Pentagon’s investment portfolio buying power.

If above-average inflationary conditions continue over the long-term, additional resources may be required to address contract and labor cost growth.

The labor market continues to present significant challenges.

We monitor labor market conditions and trends and work continuously to mitigate the effects of labor constraints through targeted programs.

Challenges in the labor market are addressed through targeted talent acquisition, partnerships with community colleges, apprentice school sourcing and recruiting, workforce succession planning, and initiatives to retain current employees.

Labor shortages are also impacting our supply chain, resulting in longer lead times for materials, parts, and other supplies.

We work with our suppliers and subcontractors to mitigate risk, arrange supply source alternatives, increase our inventory of available materials and parts, and regularly pursue cost reductions through quantity orders of materials.

Talent attraction and retention and the ability to maintain a qualified workforce affects not only industry prime contractors but suppliers as well.

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We may in the future incur additional costs and performance challenges, including as a result of higher prices, schedule delays, or the need to identify and develop alternative suppliers.

The COVID-19 pandemic has impacted our employees, customers, suppliers, and communities (collectively, “COVID-19 Events”).

While costs related to COVID-19 events are allowable under U.S.

Government contracts, our contract financial estimates reflect profit margin impact uncertainty, because such costs may not result in equitable adjustments, particularly on firm fixed-price and fixed-price incentive contracts, or may not be adequately covered by insurance.

Reinsurers under our property insurance have failed to acknowledge coverage for various losses related to COVID-19, and we filed a complaint in state court in Vermont seeking a judgment declaring that our business interruption and other losses associated with COVID-19 are covered by our property insurance program.

Government contracts, our contract financial estimates reflect cost recovery uncertainty, because such costs may not result in equitable adjustments, particularly on firm fixed-price and fixed-price incentive contracts, or may not be adequately covered by insurance.

Reinsurers under our property insurance failed to acknowledge coverage for various losses related to COVID-19, and we filed a complaint in state court in Vermont seeking a judgment declaring that our business interruption and other losses associated with COVID-19 are covered by our property insurance program.

We also initiated arbitration proceedings against other reinsurers seeking similar relief.

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Investigations, Claims, and Litigation.

Defense Industry Overview

The United States faces a complex, uncertain, and rapidly changing national security environment.

President Biden released his first National Security Strategy (the "NSS") in October 2022.

The NSS, which continues the U.S.

focus on China as the “pacing challenge” and Russia as an “acute” threat, calls for investments in emerging technologies and modernizing the U.S.

military, with a special focus on allies in the Indo-Pacific region and Europe.

The Biden Administration also released in October 2022 the public version of its 2022 National Defense Strategy (the "NDS").

Under the NDS, the Indo-Pacific region remains at the heart of U.S.

defense planning, and primary focus is placed on the need to sustain and strengthen U.S.

deterrence against China.

The NDS also takes into account the challenges posed by Russia, including those connected with its invasion of Ukraine, along with threats posed by North Korea, Iran, and violent extremist organizations.

Additionally, ‘non-traditional’ threats, such as pandemic disease and climate change, are included in the NDS as part of the national security dialogue.

Integrated deterrence, the defining principle of the NDS, seeks to align DoD activities and investments across all theaters, across the full spectrum of conflict, and across all domains, including space and cyberspace, as well as a closer working relationship with the U.S.’s network of allies and partners to deter aggression, exemplified in the Indo-Pacific region by the Australia, U.K., and U.S.

AUKUS agreement and the trilateral cooperation agreement with Japan and Korea.

also faces a more lethal and disruptive battlefield, combined across domains and conducted at increasing speed and reach.

The security environment is affected by rapid technological advancements and the changing character of war.

The drive to develop new capabilities and enhance lethality is relentless, expanding to address emerging threats from peer-competitors as well as actors with lower barriers of entry, and moving at accelerating speed.

To address these rapidly-evolving threats, the U.S.

is investing in new capabilities and lethality enhancements, including unmanned and autonomous systems and platforms;

artificial intelligence;

directed energy;

resilient networks;

command, control, communications, computers, cyber, intelligence, surveillance and reconnaissance;

and targeting requirements and microelectronics.

Technologies are being prioritized that can penetrate and operate inside highly-contested and highly-defended territory, both physical and cyber.

We anticipate the U.S.

Navy’s force projection strategy will continue to emphasize sea control and sea denial, enabling power projection against adversaries with long-range weapons and full-spectrum joint domain capabilities.

The Navy will likely continue to employ the evolving concept of Distributed Maritime Operations ("DMO"), which features multiple sensors and shooters that are widely dispersed across a broad range of manned and unmanned platforms and linked through resilient networks.

Naval forces are participating in a larger DoD-wide objective to modernize command and control architecture, the concept to connect sensors from all of the military services into a single network known as Joint All-Domain Command and Control ("JADC2").

Future conflicts may require leaders to analyze the operating environment and make decisions rapidly.

With JADC2, DoD envisions creating an “internet of things” network that would connect numerous sensors with weapons systems, using artificial intelligence algorithms to help improve decision-making.

Project Overmatch is the Navy’s effort to develop the networks, infrastructure, data architecture, and analytics to participate in this larger, networked military operating environment.

The end-state for the “Future Navy” envisions a fleet designed to ensure the wholeness of combat capability and lethal forces maximizing the benefits of DMO, expeditionary advanced base operations, and littoral operations in a contested environment.

Manned and unmanned technology will be used to expand reach, lethality, and warfighter awareness.

The Navy’s force structure goal of 355 ships, identified in the December 2016 Force Structure Assessment and codified in the fiscal year 2018 National Defense Authorization Act, has remained the fleet objective for six years.

The Navy and the DoD have been working to develop a successor for the 355-ship force-level goal.

The Navy submitted a long-range shipbuilding plan with the fiscal year 2023 budget request, but, instead of providing a single

30-year outlook for shipbuilding, the service issued three separate plans for fiscal year 2023.

The Navy crafted low-end and high-end plans based on two separate funding profiles, and a third profile emphasized the building of attack submarines and Columbia class (SSBN 826) nuclear ballistic missile submarines.

In 2022, the Navy also delivered its initial, long-range ship maintenance plan, The Framework for Maintenance and Modernization of Naval Vessels, to Congress.

The maintenance plan provides a long-range look at upcoming maintenance requirements to better prepare Navy and industry partners for projected workloads.

The Navy has struggled with maintenance delays in recent years, and a significant tension exists between maintaining and modernizing the fleet.

The DoD and Navy not only face difficult tradeoffs between modernization priorities, but also tradeoffs about where to take risk across time.

The shipbuilding defense industry is capital heavy and skilled labor intensive.

The Navy, a large single customer with many needs and requirements, dominates the industry's customer base and is served by an increasingly fragile supplier base that has trended toward exclusive providers.

Inconsistent shipbuilding plans and annual funding uncertainty severely degrade the ability of shipyards to conduct long-term planning and respond to near-term changes in requirements.

This ultimately results in longer construction times and increased costs.

For example, the high operational tempo of the Navy in recent years has resulted in a backlog of repair work across the fleet.

Coupled with the impacts of COVID-19 and increases in new ship construction, many suppliers are experiencing a shortfall in their capacity to perform work and manufacture products.

This increased demand is applying stress to already-aging production equipment.

The combination of limited suppliers and an increase in workload could increase cost and potentially create schedule slips, impacting American warfighting capability.

Ultimately, a balance will need to be achieved between the competing priorities of upgrading legacy systems for the near-term, developing and procuring the next generation of systems for the mid-term, and investing in emerging technologies that could drive game-changing capabilities in the long-term.

Additionally, the U.S.

Navy must compete with other budget priorities, including other defense activities, non-defense discretionary spending, supplemental spending for COVID-19 relief and natural disasters, entitlement programs, and other mandatory spending, for a share of federal budget funding.

While the impact to our business resulting from these developments remains uncertain, they could have a material impact on current programs, as well as new business opportunities with the DoD.

See Risk Factors in Item 1A.

Political Environment – While geopolitical pressures may point to a world where spending on defense and security in the U.S.

should increase, it remains for Congress and the Executive Branch to determine how best to balance defense and other discretionary spending with rising entitlement costs and a focus in Washington on the federal deficit.

The 118th Congress is nearly equally divided with a thin majority held in both the House and Senate.

Given the partisan political environment that will likely continue through the 2024 elections, when the presidency, all 435 House seats, and 34 Senate seats will be up for consideration, the prospect for significant legislative activity in 2024 is low.

Program Descriptions

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• Revenue recognition;

• Purchase accounting, goodwill, and intangible assets;

• Litigation, commitments, and contingencies;

• Retirement related benefit plans;

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In estimating contract costs, we utilize a profit-booking rate based upon performance expectations that incorporate a number of assumptions and estimates regarding risks related to technical requirements, feasibility, schedule, and contract costs.

Management performs periodic reviews of the contracts to evaluate the underlying risks, which may increase the profit-booking rate as we are able to mitigate and retire such risks.

Management performs periodic reviews of the contracts to evaluate the underlying risks, which may increase the profit-booking rate as we are able to mitigate and retire such

For the impacts of changes in estimates on our consolidated statements of operations and comprehensive income, see Note 7:

Revenue and Note 8:

Segment Information in Item 8.

Purchase Accounting, Goodwill, and Intangible Assets

We allocate the purchase price of acquired businesses to the underlying tangible and intangible assets acquired and liabilities assumed based upon their respective fair values, with the excess recorded as goodwill.

We recognize purchased intangible assets from our business acquisitions at fair value on the acquisition date.

Our most significant

purchased intangible assets are generally related to customer contracts, including backlog and recompeted contracts.

We determine the fair values of those customer related intangible assets based on estimates and judgments, including the amount and timing of expected future cash flows, long-term growth rates, and discount rates.

Goodwill is tested for impairment on an annual basis at each of our reporting units by assessing qualitative factors to determine whether it is more likely than not that the fair value of other intangible asset or the goodwill allocated to the reporting unit is less than its carrying amount.

If the qualitative assessment indicates a possible impairment, the carrying value of the asset or reporting unit is compared with its fair value.

If the fair value is determined to be less than the carrying value, we record an impairment charge to the reporting unit.

We perform tests for impairment of amortizable intangible assets whenever events or circumstances suggest that amortizable intangible assets may be impaired.

We estimate the fair value of each reporting unit using a combination of discounted cash flow analysis and market-based valuation methodologies.

Determining fair value requires the exercise of significant judgment, including judgments about projected revenues, operating expenses, working capital investment, capital expenditures, and cash flows over a multi-year period.

The discount rate applied to our forecasts of future cash flows is based on our estimated weighted average cost of capital.

In assessing the reasonableness of our determined fair values, we evaluate our results against our market capitalization.

Impairment assessment inherently involves management judgments as to assumptions about expected future cash flows and the impact of market conditions on those assumptions.

Changes in our estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

For further information on purchase accounting, goodwill, and intangible assets, see Risk Factors in Item 1A and Note 2:

Summary of Significant Accounting Policies, Note 4:

Acquisitions and Divestitures, and Note 11:

Goodwill and Other Intangible Assets in Item 8.

Litigation, Commitments, and Contingencies

Overview - We are subject to a range of legal proceedings before various courts and administrative agencies and are periodically subject to government audits, inquiries, and investigations that arise in the ordinary course of business.

Estimating liabilities and costs associated with these matters requires judgment and assessment based upon professional knowledge and the experience of management and our internal and external legal counsel.

In accordance with our practices relating to accounting for contingencies, we record charges to earnings when we determine, after taking into consideration the facts and circumstances of each matter, including any settlement offers, that it is probable a liability has been incurred and the amount of the loss can be reasonably estimated.

The ultimate resolution of any such exposure may vary from earlier estimates as further facts and circumstances become known.

Environmental Accruals - We are subject to the environmental laws and regulations of the jurisdictions in which we conduct operations.

We record a liability for the costs of expected environmental remediation obligations when we determine that it is probable we will incur such costs and the amount of the liability can be reasonably estimated.

When a range of costs is possible and no amount within that range is a better estimate than another, we record the minimum amount of the range.

Factors that could result in changes to the assessment of probability, range of estimated costs, and environmental liability accruals include:

modification of planned remedial actions, increase or decrease in the estimated time required to remediate, discovery of more extensive contamination than anticipated, results of efforts to involve other legally responsible parties, financial insolvency of other responsible parties, changes in laws and regulations or contractual obligations affecting remediation requirements, and improvements in remediation technology.

Although we cannot predict whether new information gained as remediation projects progress will materially affect the accrued liability, we do not believe that future remediation expenditures will have a material effect on our financial position, results of operations, or cash flows.

Income Tax Matters - The evaluation of tax positions taken in a filed tax return, or planned to be taken in a future tax return or claim, requires judgment.

We establish reserves for uncertain tax positions that do not meet the more-likely-than-not recognition threshold, based on the merits of the position.

We recognize the amount of a tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority.

If a tax position

does not meet the minimum statutory threshold to avoid payment of penalties, we recognize an expense for the amount of the penalty in the period the tax position is claimed or expected to be claimed in our tax return.

Penalties and accrued interest related to unrecognized tax benefits are recognized as a component of income tax expense.

Income Taxes in Item 8.

Changes in accruals associated with unrecognized tax benefits are recorded in earnings in the period they are determined.

For further information on litigation, commitments, and contingencies, see Risk Factors in Item 1A and Note 2:

Summary of Significant Accounting Policies, Note 4:

Acquisitions and Divestitures, Note 12:

Income Taxes, Note 14:

Investigations, Claims, and Litigation, and Note 16:

Commitments and Contingencies in Item 8.

Retirement Related Benefit Plans

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The minimum funding requirements for our qualified pension plans are determined under the Employee Retirement Income Security Act of 1974 ("ERISA"), which is primarily based on the year's expected service cost and amortization of other previously unfunded liabilities.

Effective January 1, 2011, we were subject to the funding requirements under the Pension Protection Act of 2006 ("PPA"), which amended ERISA.

Under the PPA, we are required to fully fund our pension plans over a rolling seven-year period as determined annually based upon the funded status at the beginning of each year.

PPA also introduced a variety of benefit restrictions that apply if a plan falls below certain funded percentages, as defined by the Internal Revenue Code.

Effective January 1, 2011, we were subject to the funding requirements under the Pension Protection Act of 2006 (the "PPA"), which amended ERISA.

Under the PPA and the American Rescue Plan Act of 2021, we are required to fully fund our pension plans over a rolling 15-year period as determined annually based upon the funded status at the beginning of each year.

The PPA also introduced a variety of benefit restrictions that apply if a plan falls below certain funded percentages, as defined by the Internal Revenue Code.

In funding our plans, we consider various factors, including the minimum funding requirements, the funded status needed to avoid potential benefit restrictions and other adverse consequences, minimum CAS funding requirements, and the current and anticipated funding levels of each plan.

Effective January 1, 2021, we adopted the Safe Harbor methodology used in determining CAS pension costs.

The interest rates used to calculate pension liabilities under CAS are consistent with those used in the determination of minimum funding requirements under ERISA.

Pension funding requirements under ERISA are subject to pension relief for plan sponsors in the form of higher interest rate assumptions introduced by the Moving Ahead for Progress in the 21st Century Act and subsequently extended by the American Rescue Plan Act of 2021.

Effective January 1, 2021, we adopted the Safe Harbor methodology for determining CAS pension costs.

As a result, the interest rates used to calculate pension liabilities under CAS are consistent with those used in the determination of minimum funding requirements under ERISA.

Pension funding requirements for plan sponsors under ERISA are subject to pension relief in the form of higher interest rate assumptions introduced by the Moving Ahead for Progress in the 21st Century Act and subsequently extended by the American Rescue Plan Act of 2021.

Using these minimum funding interest rates for the purposes of determining pension costs under CAS reduces volatility in CAS costs year-over-year and provides more predictable costs for our customers, while better aligning reimbursements of pension costs under our contracts with our required pension plan contributions under ERISA.

Due to the differences in requirements and calculation methodologies between FAS and CAS, our FAS pension expense is not necessarily indicative of the funding requirements under PPA or the amounts we recover from the U.S.

Government under CAS.

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The amortization period for actuarial gains and losses is the estimated average remaining service life of the plan participants.

In 2022, the actual return on assets was approximately (16.1)%, which was less than the expected return assumption of 7.25%.

For the year ended December 31, 2022, the weighted average discount rates for our pension and other postretirement benefit plans increased by 247 and 256 basis points, respectively.

The differences in asset returns resulted in an actuarial loss of $1,943 million, and the differences in discount rates resulted in an actuarial gain of $2,605 million for the year ended December 31, 2022.

In 2023, the actual return on assets was approximately 12.3%, which was greater than the expected return assumption of 8.00%.

For the year ended December 31, 2023, the weighted average discount rates for our pension and other postretirement benefit plans decreased by 19 and 15 basis points, respectively.

The differences in asset returns resulted in an actuarial gain of $263 million, and the differences in discount rates resulted in an actuarial loss of $144 million for the year ended December 31, 2023.

An increase or decrease of 25 basis points in the discount rate and the expected long-term rate of return assumptions would have had the following approximate impacts on pension expense and obligations:

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Employee Pension and Other Postretirement Benefits in Item 8, net pre-tax unrecognized actuarial losses as of December 31, 2023 and 2022 were $455 million and $678 million, respectively.

The decrease in actuarial losses in 2022 was primarily driven by lower benefit obligations of $2,605 million resulting from higher discount rates used to determine benefit obligations and amortization of previously unrecognized actuarial losses of $32 million, partially offset by asset returns less than expected returns of $1,943 million.

The decrease in actuarial losses in 2023 was primarily driven by asset returns greater than expected returns of $263 million, updated mortality assumptions of $118 million, and amortization of previously unrecognized actuarial losses of $2 million, offset by lower discount rates used to determine benefit obligations of $144 million.

Net pre-tax unrecognized prior service costs (credits) as of December 31, 2023 and 2022 were $125 million and $140 million, respectively.

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We periodically, and at least annually, update our assumptions based on an actuarial analysis.

information on workers’ compensation, see Environmental, Health & Safety in Item 1 and Note 16:

For further information on workers’ compensation, see Environmental, Health & Safety in Item 1 and Note 16:

Commitments and Contingencies in Item 8.

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Sales and Service Revenues

Sales and service revenues were comprised as follows:

Year Ended December 31 2022 over 2021 2021 over 2020

($ in millions) 2022 2021 2020 Dollars Percent Dollars Percent

Product sales $ 7,283 $ 7,000 $ 6,850 $ 283 4 % $ 150 2 %

Service revenues 3,393 2,524 2,511 869 34 % 13 1 %

Sales and service revenues $ 10,676 $ 9,524 $ 9,361 $ 1,152 12 % $ 163 2 %

2022 - Product sales in 2022 increased $283 million, or 4%, from 2021.

Product sales at our Ingalls segment increased $15 million in 2022, primarily as a result of higher volumes in amphibious assault ships and surface combatants, partially offset by lower volumes in the Legend class NSC program.

Newport News product sales increased $278 million in 2022, primarily as a result of higher volumes in aircraft carriers and submarines.

Mission Technologies product sales decreased $10 million in 2022, primarily as a result of lower volumes in mission based solutions, unmanned systems, and fleet sustainment.

Service revenues in 2022 increased $869 million, or 34%, from 2021.

Service revenues at our Ingalls segment increased $30 million in 2022, primarily as a result of higher volumes in amphibious assault ship services.

Service revenues at our Newport News segment decreased $83 million in 2022, primarily as a result of lower volumes in aircraft carrier, submarine and naval nuclear support services.

Service revenues at our Mission Technologies segment increased $922 million in 2022, primarily as a result of higher volumes in mission based solutions services due to the acquisition of Alion in 2021.

2021 - Product sales in 2021 increased $150 million, or 2%, from 2020.

Product sales at our Ingalls segment decreased $105 million in 2021, primarily as a result of lower volumes in the Legend class NSC program and amphibious assault ships, partially offset by higher volumes in surface combatants.

Newport News product sales increased $231 million in 2021, primarily as a result of higher volumes in submarines and aircraft carriers.

Mission Technologies product sales increased $24 million in 2021, primarily as a result of higher volumes in mission based solutions, partially offset by lower volumes in unmanned systems.

Service revenues in 2021 increased $13 million, or 1%, from 2020.

Service revenues at our Ingalls segment decreased $56 million in 2021, primarily as a result of lower volumes in surface combatants and amphibious assault ship services.

Service revenues at our Newport News segment decreased $138 million in 2021, primarily as a result of lower volumes in naval nuclear support services.

Service revenues at our Mission Technologies segment increased $207 million in 2021, primarily as a result of higher volumes in mission based solutions services due to the acquisition of Alion, partially offset by the divestiture of our oil and gas business and contribution of our San Diego Shipyard to a joint venture.

Cost of Sales and Service Revenues

Cost of product sales, cost of service revenues, income from operating investments, net, and general and administrative expenses were as follows:

Year Ended December 31 2022 over 2021 2021 over 2020

($ in millions) 2022 2021 2020 Dollars Percent Dollars Percent

Cost of product sales $ 6,225 $ 5,958 $ 5,621 $ 267 4 % $ 337 6 %

% of product sales 85.5 % 85.1 % 82.1 %

Cost of service revenues 3,011 2,198 2,070 813 37 % 128 6 %

% of service revenues 88.7 % 87.1 % 82.4 %

Income from operating investments, net 48 41 32 7 17 % 9 28 %

Other income and gains, net

1 2 1 (1) (50) % 1 100 %

General and administrative expenses 924 898 904 26 3 % (6) (1) %

% of total sales and service revenues 8.7 % 9.4 % 9.7 %

Period-to-period revenues reflect performance under new and ongoing contracts.

Changes in sales and service

revenues are typically expressed in terms of volume.

Unless otherwise described, volume generally refers to

increases (or decreases) in reported revenues due to varying production activity levels, delivery rates, or service

levels on individual contracts.

Volume changes will typically carry a corresponding income change based on the

profit margin rate for a particular contract.

Sales and service revenues for the year ended December 31, 2023, increased $778 million, or 7%, compared to the same period in 2022, due to higher volumes at Mission Technologies, Newport News, and Ingalls.

Cost of Sales and Service Revenues

Cost of Product Sales

2022 - Cost of product sales in 2022 increased $267 million, or 4%, compared to 2021.

Cost of product sales at our Ingalls segment increased $46 million in 2022, primarily as a result of volume increases described above and receipt of a contract incentive on USS Jack H.

Lucas (DDG 125) in 2021.

Cost of product sales at our Newport News segment increased $241 million in 2022, primarily as a result of volume increases described above.

Cost of product sales at our Mission Technologies segment decreased $12 million in 2022, primarily as a result of volume decreases described above and year-to-year variances in contract mix.

Cost of product sales related to the Operating FAS/CAS Adjustment decreased $8 million from 2021 to 2022.

Cost of product sales as a percentage of product sales increased from 85.1% in 2021 to 85.5% in 2022, primarily due to lower risk retirement on the Virginia class (SSN 774) submarine program and the RCOH of USS George Washington (CVN 73), and receipt of a contract incentive on USS Jack H.

Lucas (DDG 125) in 2021, partially offset by favorable changes in contract estimates from facilities capital and price adjustment clauses, contract incentives on the Columbia class (SSBN 826) submarine program, higher risk retirement on Harrisburg (LPD 30) and USS Fort Lauderdale (LPD 28), as well as a favorable change in the Operating FAS/CAS Adjustment.

2021 - Cost of product sales in 2021 increased $337 million, or 6%, compared to 2020.

Cost of product sales at our Ingalls segment decreased $82 million in 2021, primarily as a result of the volume changes described above.

Cost of product sales at our Newport News segment increased $65 million in 2021, primarily as a result of submarine volume increases described above, partially offset by impacts related to the performance on Block IV boats of the Virginia class (SSN 774) submarine program and delay and disruption from discrete COVID-19 Events in 2020.

Cost of product sales at our Mission Technologies segment increased $20 million in 2021, primarily due to the higher volumes described above.

Cost of product sales related to the Operating FAS/CAS Adjustment increased $334 million from 2020 to 2021.

Cost of product sales as a percentage of product sales increased from 82.1% in 2020 to 85.1% in 2021, primarily due to an unfavorable change in the Operating FAS/CAS Adjustment, lower risk retirement on USS Delbert D.

Black (DDG 119), and year-to-year variances in contract mix, partially offset by impacts related to performance on Block IV boats of the Virginia class (SSN 774) submarine program and delay and disruption from discrete COVID-19 Events in 2020, higher risk retirement on Bougainville (LHA 8), and a contract incentive on Jack H.

Lucas (DDG 125).

Cost of Service Revenues

2022 - Cost of service revenues in 2022 increased $813 million, or 37%, compared to 2021.

Cost of service revenues at our Ingalls segment increased $30 million in 2022, primarily as a result of higher volumes described above.

Cost of service revenues at our Newport News segment decreased $83 million in 2022, primarily as a result of lower volumes described above.

Cost of service revenues at our Mission Technologies segment increased $870 million in 2022, primarily as a result of higher volumes described above.

Cost of service revenues related to the Operating FAS/CAS Adjustment decreased $4 million from 2021 to 2022.

Cost of service revenues as a percentage of service revenues increased from 87.1% in 2021 to 88.7% in 2022, primarily driven by higher amortization of purchased intangible assets in 2022 due to the Alion acquisition, partially offset by higher operating income driven by the acquisition of Alion in 2021 and a favorable change in the Operating FAS/CAS Adjustment.

2021 - Cost of service revenues in 2021 increased $128 million, or 6%, compared to 2020.

Cost of service revenues at our Ingalls segment decreased $46 million in 2021, primarily as a result of the lower volumes described above.

Cost of service revenues at our Newport News segment decreased $74 million in 2021, primarily as a result of lower volumes described above.

Cost of service revenues at our Mission Technologies segment increased $177 million in 2021, primarily as a result of higher volumes changes described above.

Cost of service revenues related to the Operating FAS/CAS Adjustment increased $71 million from 2020 to 2021.

Cost of service revenues as a percentage of service revenues increased from 82.4% in 2020 to 87.1% in 2021, primarily driven by an unfavorable change in the Operating FAS/CAS Adjustment, lower risk retirement on submarine support services, and year-to-year variances in contract mix.

Cost of sales for both product sales and service revenues consists of materials, labor, and subcontracting costs, as well as an allocation of indirect costs for overhead.

We manage the type and amount of costs at the contract level,

which is the basis for estimating our total costs at completion of our contracts.

Unusual fluctuations in operating performance driven by changes in a specific cost element across multiple contracts are described in our analysis.

Refer to "Segment Operating Results" and "Product and Service Analysis" in this section for details related to cost of sales for both product sales and service revenues.

Income from Operating Investments, Net

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We therefore record income related to earnings from equity method investments in our operating income.

2022 - Income from operating investments, net increased $7 million, or 17%, to $48 million in 2022 from $41 million in 2021.

The increase resulted from higher equity income from our investment in an unconsolidated ship repair and specialty fabrication joint venture.

2021 - Income from operating investments, net increased $9 million, or 28%, to $41 million in 2021 from $32 million in 2020.

The increase resulted from higher equity income from our investment in an unconsolidated ship repair and specialty fabrication joint venture and from our unconsolidated nuclear and environmental joint ventures.

Refer to "Segment Operating Results" in this section for details related to income from operating investments.

Other Income and Gains, Net

Other income and gains, net in 2023 was $120 million, compared to $1 million in 2022.

The increase was due to the sale of our court judgment against the Bolivarian Republic of Venezuela, to recover unpaid receivables for the prior repair, refurbishment, and modernization of foreign-built frigates, and the settlement of a representations and warranties insurance claim related to the acquisition of Hydroid.

General and Administrative Expenses

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General and administrative expenses in 2023 increased $98 million, or 11%, compared to 2022.

This increase was primarily due to higher overhead costs as a result of the acquisition of Alion in 2021 and current state income tax expense, partially offset by favorable changes in non-current state income tax expense.

2021 - General and administrative expenses in 2021 decreased $6 million, or 1%, compared to 2020.

This decrease was primarily driven by favorable changes in current state income tax expense, partially offset by unfavorable changes in non-current state income tax expense and higher overhead costs driven by the acquisition of Alion.

The increase was primarily due to higher overhead costs and state income taxes.

Operating Income

We consider operating income an important measure for evaluating our operating performance, and, consistent with industry practice, we define operating income as revenues less the related costs of producing the revenues and general and administrative expenses.

We internally manage our operations by reference to "segment operating income," which is defined as operating income before the Operating FAS/CAS Adjustment and non-current state income taxes, neither of which affects segment performance.

Segment operating income is not a recognized measure under GAAP.

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Because not all companies use identical calculations, our presentation of segment operating income may not be comparable to similarly titled measures of other companies.

Refer to "Segment Operating Results" in this section for details related to segment operating income, as well as activity within each segment.

The following table reconciles operating income to segment operating income:

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Segment operating income $ 842 $ 712 $ 683 $ 130 18 % $ 29 4 %

Segment Operating Income

2022 - Segment operating income in 2022 was $712 million, compared to $683 million in 2021.

The increase was primarily due to favorable changes in contract estimates from facilities capital and price adjustment clauses, contract incentives on the Columbia class (SSBN 826) submarine program, higher risk retirement on Harrisburg (LPD 30) and USS Fort Lauderdale (LPD 28), higher operating income driven by the acquisition of Alion in 2021, and higher equity income from our investment in an unconsolidated ship repair and specialty fabrication joint venture, partially offset by higher amortization of purchased intangible assets in 2022 due to the Alion acquisition, lower risk retirement on the Virginia class (SSN 774) submarine program and the RCOH of USS George Washington (CVN 73), and receipt of a contract incentive on USS Jack H.

Lucas (DDG 125) in 2021.

2021 - Segment operating income in 2021 was $683 million, compared to $555 million in 2020.

The increase was driven by impacts related to performance on Block IV boats of the Virginia class (SSN 774) submarine program and delay and disruption from discrete COVID-19 Events in 2020.

Activity within each segment is discussed under Segment Operating Results below.

FAS/CAS Adjustment and Operating FAS/CAS Adjustment

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interest cost, expected return on plan assets, amortization of prior service cost (credit) and actuarial loss (gain), and settlement and curtailment effects.

Effective January 1, 2021, we adopted the Safe Harbor methodology for determining CAS pension costs.

Under this methodology, the interest rates used to calculate pension liabilities under CAS are consistent with those used in the determination of minimum funding requirements under the Employee Retirement Income Security Act of 1974 ("ERISA").

The components of the Operating FAS/CAS Adjustment were as follows:

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The favorable change was primarily driven by higher interest rates under FAS.

2021 - The Operating FAS/CAS Adjustment in 2021 was a net expense of $157 million, compared to a net benefit of $248 million in 2020.

The unfavorable change was primarily driven by the more immediate recognition of higher interest rates under CAS.

We expect the FAS/CAS Adjustment in 2023 to be a net benefit of approximately $81 million (($31) million FAS and $50 million CAS), primarily driven by higher interest rates offset by 2022 asset returns.

We expect the Operating FAS/CAS Adjustment in 2023 to be a net expense of approximately $68 million ($118 million FAS and $50 million CAS), primarily driven by the more immediate recognition of higher interest rates under FAS.

The expected FAS/CAS Adjustment is subject to change during 2023, when we remeasure our actuarial estimate of the unfunded benefit obligation for CAS with updated census data and other items later in the year.

We expect the FAS/CAS Adjustment in 2024 to be a net benefit of approximately $115 million (($65) million FAS and $50 million CAS), primarily driven by the more immediate recognition of the 2023 asset returns, offset by lower interest rates under FAS.

We expect the Operating FAS/CAS Adjustment in 2024 to be a net expense of approximately $63 million ($113 million FAS and $50 million CAS), primarily driven by lower interest rates under FAS.

The expected FAS/CAS Adjustment is subject to change during 2024, when we remeasure our actuarial estimate of the unfunded benefit obligation with updated census data and other items later in the year.

Non-current State Income Taxes

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Current period state income tax expense is charged to contract costs and included in cost of sales and service revenues in segment operating income.

2022 - Non-current state income tax expense in 2022 was $2 million, compared to $13 million in 2021.

The favorable change in non-current state income taxes was primarily driven by a decrease in deferred state income tax expense, largely attributable to research and development expenses that are capitalized and amortized for tax purposes.

2021 - Non-current state income tax expense in 2021 was $13 million, compared to $4 million in 2020.

The unfavorable change in non-current state income taxes was driven by an increase in deferred state income tax expense, primarily attributable to a decrease in expenses not currently deductible for income tax purposes.

Interest Expense

2022 - Interest expense in 2022 was $102 million, compared to $89 million in 2021.

The increase was primarily due to the issuance of senior notes and borrowing under the Term Loan in 2021 to partially fund the Alion acquisition.

2021 - Interest expense in 2021 was $89 million, compared to $114 million in 2020.

The decrease was primarily a result of costs associated with the early redemption in 2020 of $600 million aggregate principal amount of our 5.000% senior notes due 2025, partially offset by increased borrowing to fund the acquisition of Alion with the issuance of $400 million aggregate principal amount of 0.670% senior notes due 2023, $600 million aggregate principal amount of 2.043% senior notes due 2028, and a $650 million three-year Term Loan.

Non-Operating Retirement Benefit

The non-operating retirement benefit includes the following components of net periodic benefit costs:

interest cost, expected return on plan assets, amortization of prior service cost (credit) and actuarial loss (gain), and settlement and curtailment effects.

2022 - A favorable change in the non-operating retirement benefit of $95 million from 2021 to 2022 was primarily driven by higher 2021 returns on plan assets.

2021 - A favorable change in the non-operating retirement benefit of $62 million from 2020 to 2021 was primarily driven by higher 2020 returns on plan assets.

2022 - Other, net expense in 2022 was $20 million, compared to other, net income of $17 million in 2021.

The decrease was primarily driven by realized and unrealized net investment losses.

2021 - Other, net income in 2021 was $17 million, compared to $6 million with 2020.

The increase was primarily driven by an impairment of a loan receivable in 2020.

Federal and Foreign Income Taxes

2022 - Our effective tax rate on earnings from continuing operations was 19.5% in 2022, compared to 12.5% in 2021.

The increase in our effective tax rate for 2022 was primarily attributable to income tax benefits recorded in 2021 relating to research and development tax credits for prior periods and a tax loss associated with the sale of our oil and gas business.

2021 - Our effective tax rate on earnings from continuing operations was 12.5% in 2021, compared to 14.1% in 2020.

The decrease in our effective tax rate for 2021 was primarily attributable to an increase in research and development tax credits for prior periods and a tax loss associated with the sale of our oil and gas business, partially offset by an increase in unrecognized tax benefits.

Non-current state income tax benefit in 2023 was $11 million, compared to non-current state income tax expense of $2 million in 2022.

The favorable change in non-current state income taxes was primarily driven by a decrease in deferred state income tax expense, primarily attributable to the timing of long-term contract income for tax purposes.

SEGMENT OPERATING RESULTS

Basis of Presentation

Our discussion of business segment performance focuses on sales and service revenues and operating income,

consistent with our approach for managing our business.

We are aligned into three reportable segments:

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Performance refers to changes in contract profit margin rates.

These changes typically relate to profit recognition associated with revisions to estimated costs at completion ("EAC") that reflect improved or deteriorated operating performance on that contract.

These changes typically relate to profit recognition associated with revisions to estimated costs at completion ("EAC"), which reflect improved or deteriorated operating performance on that contract.

Operating income changes are accounted for on a cumulative to date basis at the time an EAC change is recorded.

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Where such items have occurred and the effects are material, a separate description is provided.

Cumulative Adjustments

Net Cumulative Catch-up Revenue Adjustments

For the years ended December 31, 2023, 2022, and 2021, favorable and unfavorable cumulative catch-up revenue adjustments were as follows:

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Net adjustments $ 118 $ 113 $ 115

2022 - Favorable cumulative catch-up revenue adjustments included contract incentives on the C olumbia class (SSBN 826) submarine program and higher risk retirement on USS Fort Lauderdale (LPD 28), Bougainville (LHA 8), and Harrisburg (LPD 30).

Unfavorable cumulative catch-up revenue adjustments included lower risk retirement on the Virginia class (SSN 774) submarine program, the RCOH of USS George Washington (CVN 73), and the construction of John F.

Kennedy (CVN 79).

2021 - Favorable cumulative catch-up revenue adjustments included risk retirement on Bougainville (LHA 8), a contract incentive on Jack H.

Lucas (DDG 125), and risk retirement on Fort Lauderdale (LPD 28).

No unfavorable cumulative catch-up revenue adjustments were individually significant.

2020 - Favorable cumulative catch-up revenue adjustments included risk retirement on USS Delbert D.

Black (DDG 119) in connection with its delivery and a capital expenditure contract incentive, naval nuclear support services, the San Antonio class (LPD 17) program, and other individually insignificant adjustments.

Unfavorable cumulative catch-up revenue adjustments were primarily driven by $111 million in the second quarter of 2020 on the Block IV boats of the Virginia class (SSN 774) submarine program, including $95 million for cost and schedule performance and updates to our assumptions for future program efficiencies and performance as a result of cost and schedule trends.

Our risk retirement assumptions on Block IV boats anticipated boat-to-boat cost and schedule improvements working down the learning curve, but performance trends, exacerbated by the COVID-19 Events, made those improvements less likely to occur.

Unfavorable cumulative catch-up revenue adjustments on the Block IV boats of the Virginia class (SSN 774) submarine program also included $16 million from delay and disruption directly attributable to COVID-19 Events due to lower employee attendance, decreased availability of critical skills, and out-of-sequence work.

Unfavorable cumulative catch-up revenue adjustments across all programs resulting from delay and disruption cost estimates for discrete COVID-19 Events were $61 million, including $16 million in relation to the Block IV boats of the Virginia class (SSN 774) submarine program discussed above.

When estimates of total costs to be incurred exceed estimates of total revenue to be earned on a performance obligation related to a complex, construction-type contract, we recognize the entire loss on the performance obligation in the period the loss is determined.

For the years ended December 31, 2023, 2022, and 2021, net cumulative catch-up revenue adjustments by segment were as follows:

Year Ended December 31

($ in millions) 2023 2022 2021

Ingalls $ 91 $ 109 $ 103

Newport News 9 (13) 6

Mission Technologies 18 17 6

Net adjustments $ 118 $ 113 $ 115

Year Ended December 31 2023 over 2022 2022 over 2021

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Sales and Service Revenues

2022 - Ingalls revenues, including intersegment sales, increased $42 million, or 2%, in 2022 compared to 2021, primarily driven by higher revenues in amphibious assault ships and surface combatants, partially offset by lower revenues in the Legend class NSC program.

Revenues on amphibious assault ships increased due to higher volumes on Fallujah (LHA 9) and Pittsburgh (LPD 31), partially offset by lower volume on USS Fort Lauderdale (LPD 28) following its delivery.

Revenues on surface combatants increased due to higher volumes on Thad Cochran (DDG 135), Sam Nunn (DDG 133), and Telesforo Trinidad (DDG 139), partially offset by lower volumes on

Jeremiah Denton (DDG 129) and USS Frank E.

Revenues on the Legend class NSC program decreased due to lower volumes on Friedman (NSC 11) and Calhoun ( NSC 10).

2021 - Ingalls revenues, including intersegment sales, decreased $150 million, or 6%, in 2021 compared to 2020, primarily driven by lower revenues in the Legend class NSC program and amphibious assault ships, partially offset by higher revenues in surface combatants.

Revenues on the Legend class NSC program decreased due to lower volumes on USCGC Ston e (NSC 9) following its delivery.

Amphibious assault ship revenues decreased due to lower volumes on Fort Lauderdale (LPD 28), Richard M.

(LPD 29), Harrisburg (LPD 30), and USS Tripoli (LHA 7), partially offset by higher volumes on Pittsburgh (LPD 31) and Fallujah (LHA 9).

Surface combatant revenues increased due to higher volumes on Jack H.

Lucas (DDG 125), George M.

Neal (DDG 131), Jeremiah Denton (DDG 129), and Sam Nunn (DDG 133), partially offset by lower volumes on USS Delbert D.

Black (DDG 119) following its delivery and USS Fitzgerald (DDG 62) following its redelivery.

Ingalls sales and service revenues, including intersegment sales, increased $182 million, or 7%, in 2023 compared to 2022, primarily driven by higher volumes in surface combatants and amphibious assault ships, partially offset by lower volumes in the NSC program.

Segment Operating Income

Ingalls segment operating income in 2023 was $362 million, compared to segment operating income of $292 million in 2022.

The increase was primarily due to favorable changes in contract estimates from facilities capital and price adjustment clauses and higher risk retirement on Harrisburg (LPD 30) and USS Fort Lauderdale (LPD 28), partially offset by receipt of a contract incentive on USS Jack H.

Lucas (DDG 125) in 2021.

2021 - Ingalls segment operating income in 2021 was flat compared to 2020.

The increase was primarily driven by the sale of our court judgment against the Bolivarian Republic of Venezuela, to recover unpaid receivables for the prior repair, refurbishment, and modernization of foreign-built frigates, higher volumes described above, and a contract incentive on Jeremiah Denton (DDG 129), partially offset by lower risk retirement on USS Fort Lauderdale (LPD 28), delivered in 2022, and Harrisburg (LPD 30).

Year Ended December 31 2023 over 2022 2022 over 2021

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Sales and Service Revenues

2022 - Newport News revenues, including intersegment sales, increased $189 million, or 3%, in 2022 compared to 2021, primarily driven by higher revenues in aircraft carriers and submarines, partially offset by lower revenues in naval nuclear support services.

Aircraft carrier revenues increased primarily as a result of higher volumes on the RCOH of USS John C.

Stennis (CVN 74) and the construction of Doris Miller (CVN 81) and Enterprise (CVN 80), partially offset by lower volumes on the RCOH of USS George Washington (CVN 73) and USS Gerald R.

Ford (CVN 78).

Submarine revenues increased due to higher volumes on the Columbia class (SSBN 826) submarine program and Block V boats of the Virginia class (SSN 774) submarine program, partially offset by lower volumes on Block IV boats of the Virginia class (SSN 774) submarine program.

Naval nuclear support service revenues decreased primarily as a result of lower volumes in facility maintenance services, partially offset by higher volumes in submarine fleet support services.

2021 - Newport News revenues, including intersegment sales, increased $92 million, or 2%, in 2021 compared to 2020, primarily driven by higher revenues in submarines and aircraft carriers, partially offset by lower revenues in naval nuclear support services.

Submarine revenues increased primarily as a result of higher volumes on Block V boats of the Virginia class (SSN 774) submarine program and the Columbia class (SSBN 826) submarine program, partially offset by lower volumes on Block IV boats of the Virginia class (SSN 774) submarine program.

Aircraft carrier revenues increased primarily as a result of higher volumes on the RCOH of USS John C.

Stennis (CVN 74), the construction of Enterprise (CVN 80), and the construction of Doris Miller (CVN 81), partially offset by lower volumes on the construction of John F.

Kennedy (CVN 79) and the RCOH of USS George Washington (CVN 73).

Naval nuclear support service revenues decreased primarily as a result of lower volumes in submarine fleet support services and facility maintenance services, partially offset by higher volumes in carrier fleet support services.

Newport News sales and service revenues, including intersegment sales, increased $281 million, or 5%, in 2023 compared to 2022, primarily driven by higher volumes in aircraft carrier construction and engineering, the Columbia

class (SSBN 826) submarine program, submarine services, and the Virginia class (SSN 774) submarine program, partially offset by lower volumes in aircraft carrier RCOH and naval nuclear support services.

Segment Operating Income

Newport News segment operating income in 2023 was $379 million, compared to segment operating income of $357 million in 2022.

The increase was primarily due to favorable changes in contract estimates from facilities

capital and price adjustment clauses and contract incentives on the Columbia class (SSBN 826) submarine program, partially offset by lower risk retirement on the Virginia class (SSN 774) submarine program and the RCOH of USS George Washington (CVN 73).

2021 - Newport News segment operating income in 2021 was $352 million, compared to segment operating income of $233 million in 2020.

The increase was primarily due to impacts related to performance on Block IV boats of the Virginia class (SSN 774) submarine program and delay and disruption from discrete COVID-19 Events in 2020.

The increase was due to higher volumes described above and revenue adjustment on the RCOH of USS George Washington (CVN 73), partially offset by contract incentives on the Columbia class (SSBN 826) submarine program in 2022.

Mission Technologies

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Sales and service revenues $ 2,699 $ 2,387 $ 1,476 $ 312 13 % $ 911 62 %

Segment operating income (loss) 63 50 41 13 26 % 9 22 %

Segment operating income 101 63 50 38 60 % 13 26 %

As a percentage of segment sales 3.7 % 2.6 % 3.4 %

Sales and Service Revenues

2022 - Mission Technologies revenues, including intersegment sales, for the year ended December 31, 2022, increased $911 million, or 62%, compared to 2021, primarily due to higher volumes in mission based solutions attributable to the acquisition of Alion in 2021.

2021 - Mission Technologies revenues, including intersegment sales, for the year ended December 31, 2021, increased $208 million, or 16%, compared to 2020, primarily due to higher volumes in mission based solutions from the acquisition of Alion, partially offset by the divestiture of our oil and gas business and contribution of our San Diego Shipyard to a joint venture.

Mission Technologies sales and service revenues, including intersegment sales, for the year ended December 31, 2023, increased $312 million, or 13%, compared to 2022, primarily due to higher volumes in C5ISR and CEW&S contracts.

Segment Operating Income

Mission Technologies segment operating income for the year ended December 31, 2023, was $101 million, compared to segment operating income of $63 million in 2022.

The increase was primarily driven by the acquisition of Alion in 2021 and higher equity income from our investment in an unconsolidated ship repair and specialty fabrication joint venture, partially offset by higher amortization of purchased intangible assets in 2022 due to the Alion acquisition.

2021 - Mission Technologies segment operating income for the year ended December 31, 2021, was $50 million, compared to a segment operating income of $41 million in 2020.

The increase was primarily driven by the acquisition of Alion and equity income from nuclear and environmental joint ventures, partially offset by lower performance in unmanned systems and the amortization of Alion purchased intangible assets.

The increase was primarily driven by the settlement of a representations and warranties insurance claim related to the acquisition of Hydroid and higher volumes described above, partially offset by a contract loss and lower equity income from the disposition of our investment in an unconsolidated ship repair and specialty fabrication joint venture.

PRODUCT AND SERVICE REVENUES AND COST ANALYSIS

The following table presents segment sales and service revenues by both product and service:

Segment Sales and Service Revenues

($ in millions) Year Ended December 31 2023 over 2022 2022 over 2021

Segment Information 2023 2022 2021 Dollars Percent Dollars Percent

Product $ 2,495 $ 2,372 $ 2,357 $ 123 5 % $ 15 1 %

Service 248 186 156 62 33 % 30 19 %

Intersegment 9 12 15 (3) (25) % (3) (20) %

Total Ingalls 2,752 2,570 2,528 182 7 % 42 2 %

Product 5,053 4,821 4,543 $ 232 5 % 278 6 %

Service 1,077 1,026 1,109 $ 51 5 % (83) (7) %

Intersegment 3 5 11 $ (2) (40) % (6) (55) %

Total Newport News 6,133 5,852 5,663 281 5 % 189 3 %

Mission Technologies

Product 116 90 100 $ 26 29 % (10) (10) %

Service 2,465 2,181 1,259 $ 284 13 % 922 73 %

Intersegment 118 116 117 $ 2 2 % (1) (1) %

Total Mission Technologies 2,699 2,387 1,476 312 13 % 911 62 %

Segment Totals

Product $ 7,664 $ 7,283 $ 7,000 $ 381 5 % $ 283 4 %

Service 3,790 3,393 2,524 $ 397 12 % 869 34 %

Total Segment $ 11,454 $ 10,676 $ 9,524 $ 778 7 % $ 1,152 12 %

The following table presents segment cost of sales and service revenues by both product and service:

Segment Cost of Sales and Service Revenues

($ in millions) Year Ended December 31 2023 over 2022 2022 over 2021

Segment Information 2023 2022 2021 Dollars Percent Dollars Percent

Product $ 2,031 $ 1,931 $ 1,885 $ 100 5 % $ 46 2 %

Service 207 162 132 45 28 % 30 23 %

Intersegment 9 12 15 (3) (25) % (3) (20) %

Total Ingalls 2,247 2,105 2,032 142 7 % 73 4 %

Product 4,254 4,097 3,856 $ 157 4 % 241 6 %

Service 900 858 941 $ 42 5 % (83) (9) %

Intersegment 3 5 11 $ (2) (40) % (6) (55) %

Total Newport News 5,157 4,960 4,808 197 4 % 152 3 %

Mission Technologies

Product 121 73 85 $ 48 66 % (12) (14) %

Service 2,223 1,970 1,100 $ 253 13 % 870 79 %

Intersegment 118 116 117 $ 2 2 % (1) (1) %

Total Mission Technologies 2,462 2,159 1,302 303 14 % 857 66 %

Segment Totals

Product $ 6,406 $ 6,101 $ 5,826 $ 305 5 % $ 275 5 %

Service 3,330 2,990 2,173 $ 340 11 % 817 38 %

Total Segment (1)

$ 9,736 $ 9,091 $ 7,999 $ 645 7 % $ 1,092 14 %

(1) Operating FAS/CAS Adjustment is excluded from segment cost of product sales and service revenues.

Product Sales and Segment Cost of Product Sales

Product sales in 2023 increased $381 million, or 5%, from 2022, primarily as a result of higher volumes at Newport News in aircraft carrier construction, the Columbia class (SSBN 826) submarine program, and the Virginia class (SSN 774) submarine program, and higher volumes at Ingalls in surface combatants and amphibious assault ships, partially offset by lower volumes at Newport News in aircraft carrier RCOH and lower volumes at Ingalls in the NSC program.

Cost of product sales in 2023 increased $305 million, or 5%, compared to 2022, consistent with higher product sales described above.

Service Revenues and Segment Cost of Service Revenues

Service revenues in 2023 increased $397 million, or 12%, from 2022, primarily as a result of higher volumes at Mission Technologies in C5ISR and CEW&S contracts, higher volumes at Newport News in aircraft carrier engineering and submarine services, and higher volumes at Ingalls in surface combatant services, partially offset by lower volumes at Newport News in naval nuclear support services.

Cost of service revenues in 2023 increased $340 million, or 11%, compared to 2022, consistent with higher service volumes described above.

OTHER FINANCIAL INFORMATION

Interest Expense

Interest expense in 2023 was $95 million, compared to $102 million in 2022.

The change was driven by an increase in capitalized interest costs on construction in progress.

Non-Operating Retirement Benefit

The non-operating retirement benefit includes the following components of net periodic benefit costs:

interest cost, expected return on plan assets, amortization of prior service cost (credit) and actuarial loss (gain), and settlement and curtailment effects.

The non-operating retirement benefit in 2023 was $148 million, compared to $276 million in 2022.

The unfavorable change was primarily driven by lower 2022 returns on plan assets.

Other, net income in 2023 was $19 million, compared to other, net expense of $20 million in 2022.

The increase was primarily driven by unrealized net gains in investments.

Federal and Foreign Income Taxes

Our effective tax rate on earnings from continuing operations was 20.2% in 2023, compared to 19.5% in 2022.

The increase in our effective tax rate for 2023 was primarily attributable to prior period research and development tax credits recorded in 2022.

In October 2021, the Organization for Economic Co-operation and Development (the "OECD") announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (the "Framework"), which agreed to a two-pillar solution to address tax challenges arising from digitalization of the economy.

In December 2021, the OECD released Pillar Two Model Rules defining the global minimum tax rules, which contemplate a minimum tax rate of 15%.

To date, various jurisdictions have enacted, or are in the process of enacting, legislation on these rules, and the OECD continues to release additional guidance.

While it is uncertain whether the U.S.

will enact legislation to adopt the minimum tax directive, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement the minimum tax directive.

Further, the OECD issued administrative guidance providing transition and safe harbor rules that could delay the impact of the minimum tax directive.

We will continue to monitor the implementation of the Framework by the countries in which we operate.

We currently do not expect the Framework to have a material impact on our effective tax rate or our consolidated results of operation, financial position, and cash flows.

Total backlog as of December 31, 2023, was approximately $48.1 billion.

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Contract Awards

2022 - The value of new contract awards during the year ended December 31, 2022, was approximately $9.3 billion, including awards for the construction of Fallujah (LHA 9) and Telesforo Trinidad (DDG 139).

2021 - The value of new contract awards during the year ended December 31, 2021, was approximately $8.1 billion, comprised primarily of awards for the RCOH of USS John C.

Stennis (CVN 74), construction of a 10th boat of the Virginia class (SSN 774) submarine program, and construction of John F.

Lehma n (DDG 137).

The value of new contract awards during the year ended December 31, 2023, was approximately $12.5 billion, including a funded award for the construction of Arleigh Burke class (DDG 51) destroyers, an award for the Joint Network Engineering and Emerging Operations task order, an award modification for the detail design and construction of Philadelphia (LPD 32), an award modification for long-lead-time material and advance construction activities on the Columbia class (SSBN 826) submarine program, an award modification to the construction contract for John F.

Kennedy (CVN 79), and an award modification for long-lead-time material for additional Block V boats of the Virginia class (SSN 774) submarine program.

LIQUIDITY AND CAPITAL RESOURCES

We seek to efficiently convert operating results into cash for deployment in operating our businesses, implementing our business strategy, and maximizing stockholder value.

We use various financial measures to assist in capital deployment decision making, including net cash provided by operating activities and free cash flow.

We use various financial measures to inform our capital deployment strategy, including net cash provided by operating activities and free cash flow.

We believe these measures are useful to investors in assessing our financial performance.

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Depreciation and amortization 355 366 301 (11) (3) % 65 22 %

Provision for doubtful accounts (7) 7 (1) (14) (200) % 8 800 %

Provision for expected credit losses 6 (7) 7 13 186 % (14) (200) %

Stock-based compensation 34 36 33 (2) (6) % 3 9 %

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Loss (gain) on investments in marketable securities (23) 25 (19) (48) (192) % 44 232 %

Asset impairments — — 13 — — % (13) (100) %

Retiree benefits (75) (127) (78) 52 41 % (49) (63) %

Loss on early extinguishment of debt — — 21 — — % (21) (100) %

Trade working capital decrease (increase) 105 (108) (126) 213 197 % 18 14 %

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Operating Activities

2022 - Cash provided by operating activities was $766 million in 2022, compared to $760 million in 2021.

The $6 million favorable change in operating cash flow was primarily due to lower contributions to retiree benefit plans and favorable changes in trade working capital, partially offset by higher income tax and interest payments.

The change in trade working capital was primarily driven by the timing of receipts of accounts receivable.

Cash provided by operating activities in 2023 was $970 million, compared to $766 million provided by operating activities in 2022.

The favorable change in cash was primarily due to accelerated receipts of accounts receivable and higher earnings, partially offset by higher payments for income taxes.

We expect cash generated from operations in 2024, in combination with our current cash and cash equivalents, as well as existing borrowing facilities, to be sufficient to service debt and retiree benefit plans, meet contractual obligations, and fund capital expenditures for at least the next 12 calendar months beginning January 1, 2024 and beyond such 12-month period based on our current business plans.

2021 - Cash provided by operating activities was $760 million in 2021, compared to $1,093 million in 2020.

The unfavorable change of $333 million in operating cash flow was primarily due to unfavorable changes in trade working capital, partially offset by lower income tax payments and lower contributions to retiree benefit plans.

The change in trade working capital was primarily driven by the timing of payments of accounts payable and receipts of accounts receivable.

Investing Activities

2022 - Cash used in investing activities was $268 million in 2022, a decrease of $1,686 million from 2021.

The change in investing cash flow was primarily driven by the acquisition of Alion in 2021.

Cash used in investing activities in 2023 was $236 million, compared to $268 million used in investing activities in 2022.

The change in cash used in investing activities was primarily driven by the sale of an unconsolidated ship

repair and specialty fabrication joint venture in 2023, partially offset by increased investment in one of our unconsolidated nuclear and environmental joint ventures in 2023.

For 2024, we expect our capital expenditures for maintenance and sustainment to be approximately 1.5% of annual revenues and our discretionary capital expenditures to be approximately 3.5% to 4.0% of annual revenues.

2021 - Cash used in investing activities was $1,954 million in 2021, an increase of $1,195 million from 2020.

The change in investing cash flow was driven by the acquisitions of Alion and a non-controlling interest in a specialty fabrication and ship repair joint venture in 2021, partially offset by the acquisition of Hydroid in 2020 and lower capital expenditures and the disposition of our oil and gas business in 2021.

We expect our capital expenditures to increase due to an expansion of shipbuilding capacity.

Financing Activities

2022 - Cash used in financing activities in 2022 was $658 million, compared to $1,309 million provided by financing activities in 2021.

The change in financing cash was primarily due to a $1,650 million decrease in proceeds from long-term debt, a $375 million increase in the repayment of long-term debt, a $7 million increase in employee taxes on share-based payment arrangements, and a $6 million increase in cash dividend payments, partially offset by a $49 million decrease in common stock repurchases and a $22 million decrease in debt issuance costs.

2021 - Cash provided by financing activities in 2021 was $1,309 million, compared to $103 million provided by financing activities in 2020.

The change in financing cash was primarily due to a $1,225 million increase in net proceeds from long-term debt, a $15 million decrease in premiums related to the 2020 early extinguishment of debt, and a $6 million decrease in employee taxes on share-based payment arrangements, partially offset by a $17 million increase in common stock repurchases, a $14 million increase in cash dividend payments, and a $9 million increase in debt issuance costs.

Cash used in financing activities in 2023 was $771 million, compared to $658 million used in financing activities in 2022.

The change in cash used in financing activities was primarily due to higher repayments of long term debt.

Free Cash Flow

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Free cash flow $ 692 $ 494 $ 449

2022 - Free cash flow increased $45 million from 2021, primarily due to lower contributions to retiree benefit plans, lower capital expenditures, and favorable changes in trade working capital, partially offset by higher income tax and interest payments .

2021 - Free cash flow decreased $308 million from 2020, primarily due to an unfavorable change in trade working capital, partially offset by lower income tax payments, lower contributions to retiree benefit plans, and lower capital expenditures.

Free cash flow in 2023 increased $198 million from 2022, primarily due to the increase in cash from operating activities as described above.

Retirement Related Benefit Plan Contributions

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Total contributions $ 44 $ 41 $ 106

We made discretionary contributions to our qualified defined benefit pension plans totaling less than $1 million, $60 million, and $205 million in the years ended December 31, 2022, 2021, and 2020, respectively.

As of December 31, 2022 and 2021, our qualified pension plans were funded 109% and 102%, respectively, on a FAS basis.

As of December 31, 2023 and 2022, our qualified pension plans were funded 114% and 109%, respectively.

As of December 31, 2023 and 2022, these plans were sufficiently funded on an ERISA basis so as not to be subject to benefit payment restrictions.

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Due to the differences in calculation methodologies, our FAS expense is not necessarily representative of our funding requirements or CAS cost recoveries.

Other postretirement benefit plan contributions were $31 million, $37 million, and $33 million in 2022, 2021, and 2020, respectively.

We expect 2024 contributions to our other postretirement benefit plans to be approximately $35 million, which are exclusive of CAS cost recoveries under our contracts.

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We paid cash dividends totaling $ 200 million ($5.02 per share), $ 192 million ($4.78 per share), and $ 186 million ($4.60 per share) in the years ended December 31, 2023, 2022, and 2021, respectively.

In November 2019, our board of directors authorized an increase to our stock repurchase program from $ 2.2 billion to $ 3.2 billion and an extension of the term of the program to October 31, 2024.

In January 2024, our board of directors authorized an increase to our stock repurchase program from $ 3.2 billion to $ 3.8 billion and an extension of the term of the program to December 31, 2028.

Repurchases are made from time to time at management's discretion in accordance with applicable federal securities laws.

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The Revolving Credit Facility includes a letter of credit subfacility of $ 300 million.

In 2020, we issued $1 billion aggregate principal amount of senior notes.

The net proceeds were intended to be used for general corporate purposes, including debt repayments and working capital.

In 2020, we redeemed $ 600 million aggregate principal amount of our outstanding senior notes in accordance with the terms of the indenture governing the notes.

We maintain an unsecured commercial paper note program, under which we may issue up to $ 1 billion of unsecured commercial paper notes.

For a description of our outstanding debt amounts and related restrictive covenants, see Note 13:

Debt in Item 8.

Contractual Obligations - Our future contractual obligations are related to debt, leases, pension liabilities, unrecognized tax benefits, workers compensation, and purchase obligations.

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Summary of Significant Accounting Policies in Item 8 for information about those obligations.

Our purchase obligations as of December 31, 2022, were approximately $4,525 million, with approximately $2,451 million expected to be paid in 2023 and $2,074 million thereafter.

Our purchase obligations as of December 31, 2023, were approximately $5,122 million, with approximately $2,702 million expected to be paid in

2024 and $2,420 million thereafter.

A purchase obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding on us and that specifies all significant terms, including:

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and the approximate timing of the transaction.

As of December 31, 2022, future scheduled periodic interest payments on our outstanding long-term debt, including commitment fees that we are obligated to pay on our Revolving Credit Facility, were approximately $437 million, with approximately $101 million expected to be paid in 2023 and $336 million thereafter.

As of December 31, 2023, future scheduled periodic interest payments on our outstanding long-term debt, including commitment fees that we are obligated to pay on our existing $ 1.5 billion Revolving Credit Facility, were approximately $333 million, with approximately $87 million expected to be paid in 2024 and $246 million thereafter.

Off-Balance Sheet Arrangements

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Program Name Program Description

Aircraft carrier RCOH Perform refueling and complex overhaul ("RCOH") of nuclear-powered aircraft carriers, which is required at the mid-point of their 50-year life cycle.

Stennis (CVN 74) arrived at Newport News for the start of its RCOH in May 2021, and USS George Washington (CVN 73) was redelivered to the U.S.

Navy in May 2023.

America class (LHA 6) amphibious assault ships

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The America class (LHA 6) ships optimize aviation operations and support capabilities.

In 2020, we delivered USS Tripoli (LHA 7), and, in 2022, we were awarded a long-lead-time material and construction contract for Fallujah (LHA 9).

We are currently constructing Bougainville (LHA 8) and Fallujah (LHA 9).

In 2023, we were awarded a long-lead-time material contract for LHA 10 (unnamed).

Arleigh Burke class (DDG 51) destroyers

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Navy's primary surface combatant, and have been constructed in variants, allowing technological advances during construction.

We delivered USS Paul Ignatius (DDG 117), USS Delbert D.

Black (DDG 119), USS Frank E.

(DDG 121), and Lenah H.

Sutcliffe Higbee (DDG 123) in 2019, 2020, 2021, and 2022, respectively.

We delivered USS Frank E.

(DDG 121), Lenah H.

Sutcliffe Higbee (DDG 123), and Jack H.

Lucas (DDG 125) in 2021, 2022, and 2023, respectively.

We have contracts to construct the following Arleigh Burke class (DDG 51) destroyers:

Lucas (DDG 125), Ted Stevens (DDG 128), Jeremiah Denton (DDG 129), George M.

Ted Stevens (DDG 128), Jeremiah Denton (DDG 129), George M.

Neal (DDG 131), Sam Nunn (DDG 133), Thad Cochran (DDG 135), John F.

Lehman (DDG 137), and Telesforo Trinidad (DDG 139).

Perform refueling and complex overhaul ("RCOH") of nuclear-powered aircraft carriers, which is required at the mid-point of their 50-year life cycle.

USS George Washington (CVN 73) arrived at Newport News for the start of its RCOH in August 2017, and USS John C.

Stennis (CVN 74) arrived at Newport News for the start of its RCOH in May 2021.

Lehman (DDG 137), Telesforo Trinidad (DDG 139), Ernest E.

Evans (DDG 141), and Charles J.

French (DDG 142).

Columbia class (SSBN 826) submarines

Participating in designing the Columbia class submarine as a replacement for the current aging Ohio class nuclear ballistic missile submarines, which were first introduced into service in 1981.

The Ohio class SSBN includes 14 nuclear ballistic missile submarines and four nuclear cruise missile submarines.

The Columbia class program plan of record is to construct 12 new ballistic missile submarines.

Navy has initiated the design process for the new class of submarines, and, in early 2017, the DoD signed the acquisition decision memorandum approving the Columbia class program’s Milestone B, which formally authorizes the program’s entry into the engineering and manufacturing development phase.

We perform design work as a subcontractor to Electric Boat, and we have entered into a teaming agreement with Electric Boat to build modules for the entire Columbia class (SSBN 826) submarine program that leverages our Virginia class (SSN 774) experience.

Design and construct modules for Columbia class (SSBN 826) nuclear ballistic missile submarines ("SSBNs") as a subcontractor to Electric Boat.

SSBNs are the most secure and survivable of our nation’s nuclear deterrent triad.

Columbia class SSBNs will carry approximately 70 percent of the nation’s nuclear arsenal.

The Columbia class (SSBN 826) program plan of record is to construct 12 new SSBNs to replace the current aging Ohio class.

We have a teaming agreement with Electric Boat to build modules for the entire Columbia class (SSBN 826) submarine program that leverages our Virginia class (SSN 774) experience.

We have been awarded contracts from Electric Boat for integrated product and process development, providing long–lead–time material and advance construction, and construction of the first two boats of the Columbia class (SSBN 826) submarine program.

Construction of the first Columbia class (SSBN 826) submarine began in 2020.

Fleet sustainment Maintains and modernizes a significant majority of the U.S.

Navy fleet, from small watercraft to submarines, combatants, and aircraft carriers, our systems and maintenance experts help the Navy maintain a high state of readiness.

Ensures effective system operation and sustainment by actively supporting design and decision–making processes through studies, analyses, and reviews of program documents, and provides a wide range of logistics products.

In 2023, we received an award modification for long-lead-time material and advance construction for the next five boats.

USS Gerald R.

Ford class (CVN 78) aircraft carriers

Design and construct the Ford class program, which is the aircraft carrier replacement program for the decommissioned Enterprise (CVN 65) and Nimitz class (CVN 68) aircraft carriers.

Design and construction for the Ford class program, which is the aircraft carrier replacement program for the decommissioned Enterprise (CVN 65) and Nimitz class (CVN 68) aircraft carriers.

USS Gerald R.

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The NSC is equipped to carry out maritime homeland security, maritime safety, protection of natural resources, maritime mobility, and national defense missions.

The plan is for a total of 11 ships, of which the first nine ships have been delivered.

Calhoun (NSC 10) and Friedman (NSC 11) are currently under construction.

Mission based solutions

Develops integrated solutions that enable today's connected, all–domain force.

Capabilities include:

command, control, computers, communications, cyber, intelligence, surveillance, and reconnaissance ("C5ISR") systems and operations;

the application of artificial intelligence and machine learning to battlefield decisions;

defensive and offensive cyberspace strategies and electronic warfare ("CEWS");

and live, virtual, and constructive ("LVC") solutions.

There were 11 ships planned for this program, of which the first ten ships have been delivered, and Friedman (NSC 11) is currently under construction.

Naval nuclear support services Provide services to and in support of the U.S.

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Navy's seabase transformation.

In 2022, we delivered USS Fort Lauderdale (LPD 28), and we were awarded a long-lead-time material contract for LPD 32 (unnamed).

In 2022, we delivered USS Fort Lauderdale (LPD 28), and we were awarded a long-lead-time material contract for Philadelphia (LPD 32).

In 2023, we received an award modification for the detail design and construction of Philadelphia (LPD 32).

We are currently constructing Richard M.

(LPD 29), Harrisburg (LPD 30), and Pittsburgh (LPD 31).

Unmanned systems Creates advanced unmanned maritime solutions for defense, marine research, and commercial applications.

Serving customers in more than 30 countries, unmanned systems provides design, autonomy, manufacturing, testing, operations, and sustainment of unmanned systems, including unmanned underwater vehicles and unmanned surface vessels.

Virginia class (SSN 774) fast attack submarines

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis